Skip to content
GetProfitable
Search
Dictionary

Income stock

A stock bought mainly for its dividend stream rather than price appreciation, typically with a high yield and modest growth.

Income stocks cluster in utilities, telecoms, REITs, and mature consumer names. The buyer's concern is the durability of the payment, so the dividend-payout-ratio, debt maturities, and free cash flow coverage matter more than the headline dividend-yield.

A very high yield is usually a warning, not a bargain. The market marks the price down when it expects a dividend-cut, so the trailing yield is measuring a payment that may not survive.

Example: a stock at $20 paying $1.80 shows a 9% yield. If it earns $1.60, the payout ratio is 113% and the dividend is being funded from debt. A cut to $0.90 would leave a 4.5% yield on a much lower price.

Related: dividend-yield, dividend-payout-ratio, dividend-cut, blue-chip

Educational only, not advice. Spotted an error? Post in Site Feedback.